Pension De-Risking

Publication

Publication

A Partial Buy-Out Solution

The partial buy-out or carve-out is a new pension fund de-risking solution proposed by Willis Towers Watson. In the partial buy-out only part of the pension fund liabilities are transferred to an insurer. The pensioners are generally more risk averse and have a shorter investment horizon than active participants. The pension fund board is obliged to conduct the fund policy decisions in interest of all participants, making the policy generally too risky for the pensioners and not risky enough for the active participants. In this thesis I establish with an ALM study whether transferring the entitlements of the pensioners to an insurer through a partial buy-out can benefit all participants of the fund. The pensioners can benefit from ensured entitlements and possibly indexations, whereas the active participants can benefit from the pension fund policy being more aligned to their preferences.